A Fed publication refers to the multiple expansion of deposits as "the heart of banking theory." Source: Thomas M. Humphrey, "The Theory of Multiple Expansion of Deposits: What It Is and Whence It Came," Federal Reserve Bank of Richmond Economic Review, March/April 1987. Why is the process of the multiple expansion of deposits so important to understanding how the banking system operates? (Check all that appl

Here's the full question;

Why is the process of the multiple expansion of deposit so important to understanding how the banking system operates? (select all that applies)

A) The monetary base is made up of currency and deposits, so any changes to deposit will impact the monetary base

B) The fed can accurately controlled the monetary base, however, the Fed does not control the actions of the other participants in the money supply process which is greatly affected by the banking system

C) Because the monetary system operates under a fractional reserve banking system, banks can create money on their own through the deposit creation process

D) Banks play a large role in the economy as a major source of wanting to Moe's borrowers. Since banks make so many loans, the effects of these create additional impacts in the banking system

B, C, D

Explanation:

Remember, the banking system includes three main components;

This three components make or influences the banking system.

First role is the Fed which does not control the actions of the other participants in the money supply process but is greatly affected by what happens in the banking system.

Second role performed by banks who can decide to create money on their own by encouraging deposit from customers using certain strategies.

Third role is performed by the customers who go to the banks for loans.

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